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Midterm 2 1 March 2018, questions and answers
Introduction to Finance (Mount Royal University)
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FNCE Midterm 2 Notes
Chapter 6
Types of bonds:
- Zero Default is that they use semi-annual discounting periods. Even if it
isn’t mentioned.
- Consol/Perpetual Bond: A bond with a fixed income security with no
maturity date. The principle cant be repaid, but you are given steady stream
of interest payments forever.
- Level-coupon: A bond with coupon payments that are constant throughout
the life of the bond.
- T-bill Government debt instruments, sold @ discount, no interest.
Use formula – Easy. Face value is usually $1000, even if it isn’t mentioned.
Premium: When coupon rate is above the market interest rate
Discount: When coupon rate is below the market interest rate
If interest rates go DOWN, market price of bond go UP. Vice versa
Know what the bond debenture and the bond duration are.
When dealing with BONDS
Market Rate = I/Y
Interest Rate = (interest rate x bond value)
PMT = (interest rate x bond value)
FV = Whole bond value
When dealing with Semi, Quarter, Monthly
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Midterm 2 1 March 2018, questions and answers
Introduction to Finance (Mount Royal University)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by sh half ()
, lOMoARcPSD|56342241
FNCE Midterm 2 Notes
Chapter 6
Types of bonds:
- Zero Default is that they use semi-annual discounting periods. Even if it
isn’t mentioned.
- Consol/Perpetual Bond: A bond with a fixed income security with no
maturity date. The principle cant be repaid, but you are given steady stream
of interest payments forever.
- Level-coupon: A bond with coupon payments that are constant throughout
the life of the bond.
- T-bill Government debt instruments, sold @ discount, no interest.
Use formula – Easy. Face value is usually $1000, even if it isn’t mentioned.
Premium: When coupon rate is above the market interest rate
Discount: When coupon rate is below the market interest rate
If interest rates go DOWN, market price of bond go UP. Vice versa
Know what the bond debenture and the bond duration are.
When dealing with BONDS
Market Rate = I/Y
Interest Rate = (interest rate x bond value)
PMT = (interest rate x bond value)
FV = Whole bond value
When dealing with Semi, Quarter, Monthly
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